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I'm a big fan of hope and prayer, but not as a retirement strategy. A simpler, surer way to save for the golden years exists. It's called a 401 (k). Consider the following when determining how much to invest in a 401 (k).

PAY YOURSELF FIRST

The general rule is to pay yourself first 10% of your income. The advantage of a 401 (k) is that the money goes into your retirement account even before the government takes its share, so you are literally paying yourself first. Most would be fine by following the simple 10% rule.

RETIREMENT IS A NUMBER

With the transition from benefit-defined contribution plans such as social security and pensions to contribution-defined retirement plans like a 401 (k), retirement is no longer an age, it's a number. More specifically, it's a number preceded by a dollar sign. Before determining how much to invest, determine when you want to retire and how much you will need when you do.

CHOOSE AN APPROPRIATE INVESTMENT

Once you have an inflation adjusted retirement dollar amount and a target retirement age, it's time to choose an appropriate investment. A too aggressive approach can produce a rude surprise at the wrong time. A too conservative approach can leave you far short of your goal. Because many corporate 401 (k) providers are not licensed to give financial advice, the average person is left on his or her own to choose the correct investment. Therefore, educating yourself on the different options available can make the difference between a comfortable retirement or living out your old age in poverty.

Here are some important factors to consider:

* Age: the younger you are, the more risk you can afford

* Time until retirement: the closer you are to retirement, the more conservative you should be

* Risk tolerance: assess the emotional impact of potential market fluctuations.

DON'T PANIC

With so many things to consider, it may seem overwhelming, but don't fret. Many companies have retirement-age targeted options that automatically become more conservative as the retirement date approaches. There is also a simple questionnaire that comes with many plans that allow you to objectively assess what investments suit you.

TAKE FREE MONEY

One final thing to consider: you should, in all circumstances, take advantage of your company's 401 (k) match. Your company match represents a 100% immediate return on investment, a rate of return that even Warren Buffet himself would drool over.

DEVISE A PLAN

Before determining how much to invest in a 401 (k), first, determine what your retirement needs are; second, determine what age you would realistically like to retire; third, determine what specific program to invest in; and fourth, determine the amount you need to invest to accomplish your goal. At that point, if you wish to utilize hope and prayer, do so with confidence!

Learn more about this author, Trent Lorcher.
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